公司理财课后习题答案chapter12estimatingthecostofcapital

1、企业理财课后习题及答案chapter12estimatingthecostofcapital企业理财课后习题及答案chapter12estimatingthecostofcapital88/88企业理财课后习题及答案chapter12estimatingthecostofcapitalCorporateFinance,3e(Berk/DeMarzo)Chapter12EstimatingtheCostofCapitalTheEquityCostofCapitalUsethefollowinginformationtoanswerthequestion(s)below.BetaVolatilit

2、yEenie20%Meenie18%Miney35%Moe25%Assumethattherisk-freerateofinterestis3%andyouestimatethemarketsexpectedreturntobe9%.WhichfirmhasthemosttotalriskA)EenieB)MeenieC)MineyD)MoeAnswer:CExplanation:C)TotalriskismeasuredusingvolatilityandMineyhasthehighestvolatility,hencethemosttotalrisk.Diff:1Section:TheE

3、quityCostofCapitalSkill:Analytical2)WhichfirmhastheleastmarketriskEenieMeenieMineyMoeAnswer:AExplanation:A)MarketriskismeasuredusingbetaandEeniehasthelowestbeta,hencethelowestmarketrisk.Diff:1Section:TheEquityCostofCapitalSkill:AnalyticalWhichfirmhasthehighestcostofequitycapitalA)EenieB)MeenieC)Mine

4、yD)MoeAnswer:DExplanation:D)CostofcapitalismeasuredusingtheCAPMandisalinearfunctionofbeta.Thereforethefirmwiththehighestbeta(Moe)hasthehighestcostofequitycapital.Diff:1Section:TheEquityCostofCapitalSkill:AnalyticalTheequitycostofcapitalforMineyisclosestto:A)%B)%C)%D)%Answer:CExplanation:C)rMiney=3%+

5、(9%-3%)=%Diff:1Section:TheEquityCostofCapitalSkill:AnalyticalTheequitycostofcapitalforMeenieisclosestto:A)%B)%Meenie=(9%-3%)=%Answer:BExplanation:B)rMeenie=3%+(9%-3%)=%Diff:1Section:TheEquityCostofCapitalSkill:AnalyticalTheriskpremiumforMeenieisclosestto:A)%B)%C)%D)%Answer:AExplanation:A)riskpremium

6、Diff:2Section:TheEquityCostofCapitalSkill:AnalyticalTheMarketPortfolioUsethefollowinginformationtoanswerthequestion(s)below.Supposeallpossibleinvestmentopportunitiesintheworldarelimitedtothefourstockslistinthetablebelow:PriceperNumberofSharesStockShareOutstanding(Millions)TaggartTranscontinental$25R

7、eardenMetal$45WyattOil$10NielsonMotors$261)TheweightonTaggartTranscontinentalstockinthemarketportfolioisclosestto:A)15%B)20%C)25%D)30%Answer:BExplanation:B)CalculationsBCD/1950StockTaggartTranscontinentalPriceperShare$NumberofSharesOutstanding(Millions)25MarketCap$WeightReardenMetal$45$WyattOil$10$N

8、ielsonMotors$26$Total$Diff:1Section:TheMarketPortfolioSkill:AnalyticalTheweightonWyattOilstockinthemarketportfolioisclosestto:A)15%B)20%C)25%D)30%Answer:AExplanation:A)CalculationsBCD/1950NumberofSharesPriceperOutstandingMarketStockShare(Millions)CapWeightTaggartTranscontinental$25$ReardenMetal$45$W

9、yattOil$10$NielsonMotors$26$Total$Diff:1Section:TheMarketPortfolioSkill:Analytical3)Supposethatyouareholdingamarketportfolioandyouhaveinvested$9,000inReardenMetal.TheamountthatyouhaveinvestedinNielsonMotorsisclosestto:$6,000$7,715$9,000D)$10,500Answer:DExplanation:D)CalculationsBCD/1950NumberofShare

10、sPriceperOutstandingMarketStockShare(Millions)CapWeightTaggartTranscontinental$25$ReardenMetal$45$WyattOil$10$NielsonMotors$26$Total$AmountNielson=AmountRearden=$9,000=$10,500Diff:2Section:TheMarketPortfolioSkill:AnalyticalSupposethatyouareholdingamarketportfolioandyouhaveinvested$9,000inReardenMeta

11、l.TheamountthatyouhaveinvestedinTaggartTranscontinentalisclosestto:A)$4,500B)$6,000C)$7,715D)$9,000Answer:BExplanation:B)CalculationsBCD/1950NumberofSharesPriceperOutstandingMarketStockShare(Millions)CapWeightTaggartTranscontinental$25$ReardenMetal$45$WyattOil$10$NielsonMotors$26$Total$AmountNielson

12、=AmountRearden=$9,000=$6,000Diff:2Section:TheMarketPortfolioSkill:Analytical5)Supposethatyouhaveinvested$30,000investedinthemarketportfolio.ThentheamountthatyouhaveinvestedinWyattOilisclosestto:A)$4,500B)$6,000C)$7,715D)$9,000Answer:AExplanation:A)CalculationsBCD/1950NumberofSharesPriceperOutstandin

13、gMarketStockShare(Millions)CapWeightTaggartTranscontinental$25$ReardenMetal$45$WyattOil$10$NielsonMotors$26$Total$AmountWO=WeightWOAmountMarket=.15$30,000=$4,500Diff:2Section:TheMarketPortfolioSkill:Analytical6)Supposethatyouhaveinvested$30,000inthemarketportfolio.ThenofsharesofReardenMetalthatyouho

14、ldisclosestto:A)450sharesB)700sharesC)1,400sharesD)2,300sharesthenumberAnswer:BExplanation:B)CalculationsBCD/1950NumberofSharesPriceperOutstandingMarketStockShare(Millions)CapWeightTaggartTranscontinental$25$ReardenMetal$45$WyattOil$10$NielsonMotors$26$Total$SharesRM=sharesDiff:2Section:TheMarketPor

15、tfolioSkill:Analytical7)Supposethatyouhaveinvested$30,000inthemarketportfolio.ThenofsharesofWyattOilthatyouholdisclosestto:A)150sharesB)300sharesC)350sharesD)450sharesAnswer:AExplanation:A)thenumberCalculationsBCD/1950StockTaggartTranscontinentalReardenMetalWyattOilNielsonMotorsPriceperShare$Numbero

16、fSharesOutstanding(Millions)25451026MarketCap$WeightTotal$SharesWO=sharesDiff:2Section:TheMarketPortfolioSkill:AnalyticalSupposethatyouareholdingamarketportfolioandyouhaveinvested$18,000inTaggartTranscontinental.ThenumberofsharesofWyattOilthatyouholdisclosestto:A)90sharesB)460sharesC)615sharesD)770s

17、haresAnswer:BExplanation:B)CalculationsBCD/1950NumberofSharesPriceperOutstandingMarketStockShare(Millions)CapWeightTaggartTranscontinental$25$ReardenMetal$45$WyattOil$10$NielsonMotors$26$Total$=sharesDiff:2Section:TheMarketPortfolioSkill:Analytical9)Supposethatyouareholdingamarketportfolioandyouhave

18、invested$18,000inTaggartTranscontinental.ThenumberofsharesofReardenMetalthatyouholdisclosestto:A)780sharesB)925sharesC)1,730sharesD)2,075sharesAnswer:BExplanation:B)CalculationsBCD/1950NumberofSharesPriceperOutstandingMarketStockShare(Millions)CapWeightTaggartTranscontinental$25$ReardenMetal$45$Wyat

19、tOil$10$NielsonMotors$26$Total$=2,sharesDiff:2Section:TheMarketPortfolioSkill:AnalyticalSupposethatyouhaveinvested$100,000investedinthemarketportfolioandthatthestockpriceofTaggartTranscontinentalsuddenlydropsto$pershare.Whichofthefollowingtradeswouldyouneedtomakeinordertomaintainyourinvestmentinthem

20、arketportfolio:Buyapproximately1,140sharesofTaggartTranscontinentalSellapproximately256sharesofReardenMetalSellapproximately57sharesofWyattOilSellapproximately148sharesofNielsonMotors1only2only2,3,and4only1,2,3,and4NoneoftheaboveAnswer:EExplanation:E)Thereisnoneedtorebalanceyourportfolio.Asaninvesto

21、r,youstillholdthemarketportfolioandthereforetherearenotradesneeded.Diff:3Section:TheMarketPortfolioSkill:AnalyticalUsethefollowinginformationtoanswerthequestion(s)below.SupposethatMerck(MRK)stockistradingfor$persharewithbillionsharesoutstandingwhileBoeing(BA)hasmillionsharesoutstandingandamarketcapi

22、talizationof$billion.Assumethatyouholdthemarketportfolio.Boeingsstockpriceisclosestto:A)$B)$C)$D)$Answer:C12)Mercksmarketcapitalizationisclosestto:A)$billionB)$billionC)$billionD)$billionAnswer:BExplanation:B)MarketCap=Pricesharesoutstanding=$2,110=$77,437millionDiff:1Section:TheMarketPortfolioSkill

23、:AnalyticalIfyouhold1,000sharesofMerck,thenthenumberofsharesofBoeingthatyouholdisclosestto:A)240sharesB)330sharesC)510sharesD)780sharesAnswer:BExplanation:B)SharesBA=sharesDiff:3Section:TheMarketPortfolioSkill:Analytical14)WhichofthefollowingstatementsisFALSEAllinvestorsshoulddemandthesameefficientp

24、ortfolioofsecuritiesinthesameproportions.B)TheCapitalAssetPricingModel(CAPM)allowscorporateexecutivestoidentifytheefficientportfolio(ofriskyassets)byusingknowledgeoftheexpectedreturnofeachsecurity.C)Ifinvestorsholdtheefficientportfolio,thenthecostofcapitalforanyinvestmentprojectisequaltoitsrequiredr

25、eturncalculatedusingitsbetawiththeefficientportfolio.TheCAPMidentifiesthemarketportfolioastheefficientportfolio.Answer:BDiff:1Section:TheMarketPortfolioSkill:Conceptual15)WhichofthefollowingstatementsisFALSEIfinvestorshavehomogeneousexpectations,theneachinvestorwillidentifythesameportfolioashavingth

26、ehighestSharperatiointheeconomy.Homogeneousexpectationsarewhenallinvestorshavethesameestimatesconcerningfutureinvestmentsandreturns.Therearemanyinvestorsintheworld,andeachmusthaveidenticalestimatesofthevolatilities,correlations,andexpectedreturnsoftheavailablesecurities.Thecombinedportfolioofriskyse

27、curitiesofallinvestorsmustequaltheefficientportfolio.Answer:CDiff:1Section:TheMarketPortfolioSkill:Conceptual16)WhichofthefollowingstatementsisFALSEA)Ifsomesecuritywerenotpartoftheefficientportfolio,theneveryinvestorwouldwanttoownit,anddemandforthissecuritywouldincreasecausingitsexpectedreturntofall

28、untilitisnolongeranattractiveinvestment.B)Theefficientportfolio,theportfoliothatallinvestorsshouldhold,mustbethesameportfolioasthemarketportfolioofallriskysecurities.C)Becauseeverysecurityisownedbysomeone,thesumofallinvestorsportfoliosmustequaltheportfolioofallriskysecuritiesavailableinthemarket.Ifa

29、llinvestorsdemandtheefficientportfolio,andsincethesupplyofsecuritiesisthemarketportfolio,thentwoportfoliosmustcoincide.Answer:ADiff:2Section:TheMarketPortfolioSkill:Conceptual17)WhichofthefollowingstatementsisFALSEA)Themarketportfoliocontainsmoreofthesmalleststocksandlessofthelargerstocks.Forthemark

30、etportfolio,theinvestmentineachsecurityisproportionaltoitsmarketcapitalization.C)Becausethemarketportfolioisdefinedasthetotalsupplyofsecurities,theproportionsshouldcorrespondexactlytotheproportionofthetotalmarketthateachsecurityrepresents.Marketcapitalizationisthetotalmarketvalueoftheoutstandingshar

31、esofafirm.Answer:ADiff:1Section:TheMarketPortfolioSkill:Conceptual18)WhichofthefollowingstatementsisFALSEAvalue-weightedportfolioisanequal-ownershipportfolio:Weholdanequalfractionofthetotalnumberofsharesoutstandingofeachsecurityintheportfolio.B)Whenbuyingavalue-weightedportfolio,weenduppurchasingthe

32、samepercentageofsharesofeachfirm.C)Tomaintainavalue-weightedportfolio,wedonotneedtotradesecuritiesandrebalancetheportfoliounlessthenumberofsharesoutstandingofsomesecuritychanges.D)Inavalueweightedportfoliothefractionofmoneyinvestedinanysecurityintheportfolio.Answer:DDiff:1Section:TheMarketPortfolioS

33、kill:Conceptual19)WhichofthefollowingstatementsisFALSEThemostfamiliarstockindexintheUnitedStatesistheDowJonesIndustrialAverage(DJIA).Aportfolioinwhicheachsecurityisheldinproportiontoitsmarketcapitalizationiscalledaprice-weightedportfolio.TheDowJonesIndustrialAverage(DJIA)consistsofaportfolioof30larg

34、eindustrialstocks.TheDowJonesIndustrialAverage(DJIA)isaprice-weightedportfolio.Answer:BExplanation:B)Aportfolioinwhicheachsecurityisheldinproportiontoitsmarketcapitalizationiscalledavalue-weightedportfolio.Diff:2Section:TheMarketPortfolioSkill:Conceptual20)WhichofthefollowingstatementsisFALSEBecause

35、verylittletradingisrequiredtomaintainit,anequal-weightedportfolioiscalledapassiveportfolio.B)Ifthenumberofsharesinavalueweightedportfoliodoesnotchange,butonlythepriceschange,theportfoliowillremainvalueweighted.TheCAPMsaysthatindividualinvestorsshouldholdthemarketportfolio,avalue-weightedportfolioofa

36、llriskysecuritiesinthemarket.Apriceweightedportfolioholdsanequalnumberofsharesofeachstock,independentoftheirsize.Answer:AExplanation:A)Becauseverylittletradingisrequiredtomaintainit,avalue-weightedportfolioiscalledapassiveportfolio.Diff:3Section:TheMarketPortfolioSkill:Conceptual21)Whichofthefollowi

37、ngstatementsisFALSEA)Amarketindexreportsthevalueofaparticularportfolioofsecurities.B)TheS&P500isthestandardportfoliousedtorepresentthemarketwhenusingtheCAPMinpractice.EventhoughtheS&P500includesonly500ofthemorethan7,000individual.Stocksinexistence,itrepresentsmorethan70%ofthe.stockmarketintermsofmar

38、ketcapitalization.TheS&P500isanequal-weightedportfolioof500ofthelargest.stocks.Answer:DExplanation:D)TheS&P500isavalue-weightedportfolioof500ofthelargest.stocks.Diff:2Section:TheMarketPortfolioSkill:Conceptual22)WhichofthefollowingstatementsisFALSEA)TheS&P500andtheWilshire5000indexesarebothwell-dive

39、rsifiedindexesthatroughlycorrespondtothemarketof.stocks.B)PractitionerscommonlyusetheS&P500asthemarketportfoliointheCAPMwiththebeliefthatthisindexisthemarketportfolio.Standard&PoorsDepositoryReceipts(SPDR,nicknamedspider)tradeontheAmericanStockExchangeandrepresentownershipintheS&P500.D)TheS&P500wast

40、hefirstwidelypublicizedvalueweightedindexandithasbecomeabenchmarkforprofessionalinvestors.Answer:BDiff:2Section:TheMarketPortfolioSkill:ConceptualInpracticewhichmarketindexismostwidelyusedasaproxyforthemarketportfoliointheCAPMA)DowJonesIndustrialAverageB)Wilshire5000C)S&P500D).TreasuryBillAnswer:CDi

41、ff:1Section:TheMarketPortfolioSkill:ConceptualInpracticewhichmarketindexwouldbestbeusedasaproxyforthemarketportfoliointheCAPMA)S&P500B)DowJonesIndustrialAverageC).TreasuryBillD)Wilshire5000Answer:DDiff:1Section:TheMarketPortfolioSkill:ConceptualUsethetableforthequestion(s)below.Considerthefollowings

42、tockpriceandsharesoutstandingdata:SharesPriceperOutstandingStockNameShare(Billions)Lowes$Wal-Mart$Intel$Boeing$ThemarketcapitalizationforWal-Martisclosestto:A)$415BillionB)$276BillionC)$479BillionD)$200BillionAnswer:DExplanation:D)SharesMarketPriceperOutstandingCapitalizationStockNameShare(Billions)

43、(Billions)Lowes$Wal-Mart$Intel$Boeing$Total$Diff:1Section:TheMarketPortfolioSkill:AnalyticalThetotalmarketcapitalizationforallfourstocksisclosestto:A)$479BillionB)$415BillionC)$2,100BillionD)$200BillionAnswer:BExplanation:B)SharesMarketPriceperOutstandingCapitalizationStockNameShare(Billions)(Billio

44、ns)Lowes$Wal-Mart$Intel$Boeing$Total$Diff:1Section:TheMarketPortfolioSkill:AnalyticalIfyouareinterestedincreatingavalue-weightedportfolioofthesefourstocks,thenthepercentageamountthatyouwouldinvestinLowesisclosestto:A)25%B)11%C)%D)12%Answer:BExplanation:B)SharesMarketPriceperOutstandingCapitalization

45、PercentofStockNameShare(Billions)(Billions)TotalLowes$%Wal-Mart$%Intel$%Boeing$%Total$Diff:2Section:TheMarketPortfolioSkill:AnalyticalAssumethatyouhave$100,000toinvestandyouareinterestedincreatingavalue-weightedportfolioofthesefourstocks.ThenumberofsharesofWal-Martthatyouwouldholdinyourportfolioiscl

46、osestto:A)710B)1390C)1000D)870Answer:CExplanation:C)SharesMarketPriceperOutstandingCapitalizationPercentNumberofStockNameShare(Billions)(Billions)ofTotalSharesLowes$%368Wal-Mart$%1,002Intel$%1,387Boeing$%190Total$Numberofshares=Diff:2Section:TheMarketPortfolioSkill:AnalyticalAssumethatyouhave$100,00

47、0toinvestandyouareinterestedincreatingavalue-weightedportfolioofthesefourstocks.ThepercentageofthesharesoutstandingofBoeingthatyouwouldholdinyourportfolioisclosestto:A).000018%B).000020%C).000024%D).000031%Answer:CExplanation:C)SharesMarketPriceperOutstandingCapitalizationPercentNumberofStockNameSha

48、re(Billions)(Billions)ofTotalSharesLowes$%368Wal-Mart$%1,002Intel$%1,387Boeing$%190Total$Numberofshares=percentagesharesoutstanding=190/0=.000024%Diff:2Section:TheMarketPortfolioSkill:Analytical30)Assumethatyouhave$250,000toinvestandyouareinterestedincreatingavalue-weightedportfolioofthesefourstocks

49、.HowmanysharesofeachofthefourstockswillyouholdWhatpercentageofthesharesoutstandingofeachstockwillyouholdAnswer:SharesMarketPriceperOutstandingCapitalizationPercentNumberofStockNameShare(Billions)(Billions)ofTotalSharesLowes$%368Wal-Mart$%1,002Intel$%1,387Boeing$%190Total$%ofShares%Numberofshares=Ina

50、valueweightedportfolio,thepercentageofsharesofeverystockwillbethesame.Diff:3Section:TheMarketPortfolioSkill:AnalyticalBetaEstimationUsethefollowinginformationtoanswerthequestion(s)below.YearRisk-freeReturnMarketReturnWyattOilReturnMarketExcessReturnWyattOilExcessReturnBeta2007%2008%.40%2009%WyattOil

51、saveragehistoricalreturnisclosestto:A)%B)%C)%D)%Answer:AExplanation:A)raverage=Year200720082009AverageRisk-freeReturn%MarketReturn%WyattOilReturn%MarketExcessReturn%WyattOilExcessReturn%Section:BetaEstimationSkill:AnalyticalTheMarketsaveragehistoricalreturnisclosestto:A)%B)%C)%D)%Answer:BExplanation

52、:B)raverage=WyattMarketOilRisk-freeMarketWyattOilExcessExcessYearReturnReturnReturnReturnReturn2007%2008%2009%Average%Diff:1Section:BetaEstimationWyattOilsaveragehistoricalexcessreturnisclosestto:A)%B)%C)%D)%Answer:CExplanation:C)excessreturnaverage=WyattMarketOilRisk-freeYearReturn2007%2008%2009%Av

53、erage%Diff:2Section:BetaEstimationMarketReturn%WyattOilReturn%ExcessReturn%ExcessReturn%Skill:AnalyticalTheMarketsaveragehistoricalexcessreturnisclosestto:A)%B)%C)%D)%Answer:DExplanation:D)excessreturnaverage=WyattRisk-freMarketOileMarketWyattOilExcessExcessYearReturnReturnReturnReturnReturn2007%200

54、8%2009%Average%Diff:2Section:BetaEstimationWyattOilsexcessreturnfor2009isclosestto:A)%B)%C)%D)%Answer:AExplanation:A)excessreturne=(r-rrf)2009WOWyattRisk-freMarketOileMarketWyattOilExcessExcessYearReturnReturnReturnReturnReturn2007%2008%2009%Average%Diff:1Section:BetaEstimationSkill:AnalyticalTheMar

55、ketsexcessreturnfor2008isclosestto:A)%B)%C)%D)%Answer:AExplanation:A)excessreturne=(r-rrf)2009WOWyattMarketOilRisk-freeMarketWyattOilExcessExcessYearReturnReturnReturnReturnReturn2007%2008%2009%Average%Diff:1Section:BetaEstimationSkill:AnalyticalUsingtheaveragehistoricalexcessreturnsforbothWyattOila

56、ndtheMarketportfolio,yourestimateofWyattOilsBetaisclosestto:A)B)C)D)Answer:BExplanation:B)excessreturnaverage=excessreturnaverage=WyattMarketOilRisk-freeMarketWyattOilExcessExcessYearReturnReturnReturnReturnReturn2007%2008%2009%Average%=.8375WODiff:3Section:BetaEstimationSkill:Analytical8)Usingtheav

57、eragehistoricalexcessreturnsforbothWyattOilandtheMarketportfolioestimateofWyattOilsBeta.Whenusingthisbeta,thealphaforWyattoilin2007isclosestto:%+%Answer:CExplanation:C)excessreturnaverage=excessreturnaverage=WyattMarketOilRisk-freeMarketWyattOilExcessExcessYearReturnReturnReturnReturnReturn2007%2008

58、%2009%Average%WO=.8375=actualreturn-expectedreturnforCAPM%-3%+.8375(6%-3%)=%Diff:3Section:BetaEstimationSkill:Analytical9)Usingjustthereturndatafor2009,yourestimateofWyattOilsBetaisclosestto:A)B)C)D)Answer:BExplanation:B)WyattMarketOilRisk-freeMarketWyattOilExcessExcessYearReturnReturnReturnReturnRe

59、turn2007%2008%2009%Average%WO=.8651Diff:2Section:BetaEstimationSkill:Analytical10)Usingjustthereturndatafor2008,yourestimateofWyattOilsBetaisclosestto:A)B)C)D)Answer:AExplanation:A)WyattMarketOilYear200720082009AverageRisk-freeReturn%MarketReturn%WyattOilReturn%ExcessReturn%ExcessReturn%WO=-=.8525Di

60、ff:2Section:BetaEstimationSkill:Analytical11)WhichofthefollowingstatementsisFALSEBetaistheexpectedpercentchangeintheexcessreturnofthesecurityfora1%changeintheexcessreturnofthemarketportfolio.Betarepresentstheamountbywhichrisksthataffecttheoverallmarketareamplifiedforagivenstockorinvestment.C)Itiscom